TP finds out the hard way that IRS is part of government

[rogfulton]

Lauren Georgette Rice, as trustee of the Lauren G Rice Trust, tries to convince the Tax Court that the IRS can't have back an erroneous $99,502 refund by stating, among other things, that she didn't get her NFTL in time, the IRS is not part of the Federal Government and that her rights were violated when the 3352 was personally delivered to her at her place of employment.

Read the Memorandum opinion here.

No 6673 penalty but a warning to not try it again or else.

[LPC]

This is one of those cases in which it is difficult to figure out what the taxpayer did, or why.

From the opinion:

The trust was formed during 2007, and Ms. Rice timely filed an initial return on the trust’s behalf on April 15, 2008. On the Form 1041, U.S. Income Tax Return for Estates and Trusts, the trust reported income of $298,507, deductions of $298,507, and a zero tax liability. It also reported tax withholdings of $99,502, for which it claimed a refund. The entire $99,502 was refunded by a check made out to “Loren G. Rice, Loren Georgette Rice TTEE” on May 27, 2008. The check was cashed or deposited on June 17, 2008, and endorsed by “Loren G. Rice, Trustee”.

On or about March 8, 2010, respondent made a quick assessment against Loren G. Rice, Loren Georgette Rice TTEE, and issued a Form 3552, Notice of Tax Due on Federal Tax Return.

According to the court, the "quick assessment" was proper because the taxpayer had "overstated" the tax withheld, which I take to mean that the return was fraudulent and that there was no tax withheld at all.

So what's going on? Was this:

1. An OID scam, pulled off through a trust instead of individually?

2. An assignment of income scam, in which the taxpayer reported her salary as income to the trust, then claimed deductions for administering the trust, and claimed a refund for income taxes (and social security taxes?) withheld from her salary?

3. Just run-of-the mill tax fraud, using made up numbers with no theory at all, much like prisoners make up numbers and then file bogus Forms 1040.

4. Something else?

As I said, hard to tell.